Taxing Innovation? Bad Idea.

The U.S. has traditionally led the world in medical device innovation. That's good - good for patients, good for our health care system, good for U.S. jobs, and good for the balance of trade.

But in a few weeks, medical device companies are facing a new 2.5% tax on the top line revenues. That's going to hit growing companies - many of which aren't yet profitable - very hard. This tax comes on top of a number of other significant headwinds facing medical device companies. In recent years, that's meant fewer new companies focused on finding breakthrough ways to treat things like diabetes and obesity.

If we're going to reverse this tide and make sure the U.S. remains a leader in medical device innovation, we need to start removing these headwinds. That's why six SVBers who work with life science clients - along with five of our clients - went to Washington D.C. last week.

Over the course of two days, we met with more than two dozen Members of Congress and congressional staffers. We urged Congress to repeal the medical device tax. The device tax isn't the biggest issue facing small, growing device companies, but it is one more drain on scarce cash, and one more challenge to overcome. And it's fixable.

During our time in D.C., we met with the members of Congress leading the charge on the device tax (Senator Klobuchar and Representative Paulsen), with staff to the leadership in the House and Senate, with other Members and staff who agree with our position on the device tax … and with many who don't.

We were pleasantly surprised by how many Members and congressional staffers understand the critical role device start-ups play in making sure the U.S. continues to lead the world in device innovation. By and large, people seem to be sympathetic to fixing the device tax for smaller, entrepreneurial companies. Those who don't support a repeal generally also understand why we're concerned - they just don't see how we pay for this, on top of the enormous budget deficit we already face.

Looking forward, we see this playing out in two phases. The immediate question is whether Congress will defer the tax's effective date to give them time in 2013 to craft a comprehensive, longer term solution. The slightly longer term (2013) challenge is to find a real, long term solution to the device tax. We'll be going back to D.C. to join others working on this issue, with a specific focus on the particularly severe problems the device tax creates for growing companies.

The U.S. has traditionally led the world in medical device innovation. That's good - good for patients, good for our health care system, good for U.S. jobs, and good for the balance of trade.

But in a few weeks, medical device companies are facing a new 2.5% tax on the top line revenues. That's going to hit growing companies - many of which aren't yet profitable - very hard. This tax comes on top of a number of other significant headwinds facing medical device companies. In recent years, that's meant fewer new companies focused on finding breakthrough ways to treat things like diabetes and obesity.

If we're going to reverse this tide and make sure the U.S. remains a leader in medical device innovation, we need to start removing these headwinds. That's why six SVBers who work with life science clients - along with five of our clients - went to Washington D.C. last week.

Over the course of two days, we met with more than two dozen Members of Congress and congressional staffers. We urged Congress to repeal the medical device tax. The device tax isn't the biggest issue facing small, growing device companies, but it is one more drain on scarce...Read More